Guide to Indian Private Limited Company for Foreigners – Foreign Nationals and Foreign Companies

India as one of the fastest growing economies in the world attracts plenty of Foreign Direct Investment (FDI) and Private Equity capital. According to a recent report by Nomura, a Japanese Brokerage firm, FDI into India is likely to have hit high of $34.9 billion in financial year 2015, a massive 61.6 per cent jump from $21.6 billion in the previous fiscal. With the world’s second largest population and a large talent pool of skilled IT professionals, India continues to be an attractive destination for investment amongst Foreign Companies and Foreign Nationals. In this article, we provide a comprehensive guide to Indian Private Limited Company and India entry strategy for foreign nationals and foreign companies.

Incorporation of a Private Limited Company or Limited Company

Incorporation of a private limited company is the easiest and fastest type of India entry strategy for foreign nationals and foreign companies. Foreign direct investment of upto 100% into a private limited company or limited company is under the automatic route, wherein no Central Government permission is required. Hence, incorporation of a private limited company as a wholly owned subsidiary of a foreign company or joint venture is the cheapest, easiest and fastest entry strategy for foreign companies and foreign nationals into India.

Incorporation of a Limited Liability Partnership

Incorporation of a Limited Liability Partnership (LLP) is not recommended as an India entry strategy for foreign nationals or foreign citizens as it requires Government approval. Limited Liability Partnership is a new type entity, recently introduced in India. Hence, any foreign investment into a LLP requires prior approval from the Central Government.

Through Proprietorship Firms or Partnership Firms

Proprietorship firms or Partnership firms are the most basis types of business entities mostly used by very small businesses or unorganised players. Foreign investment into a proprietorship firm or partnership firm requires prior RBI approval. Hence, proprietorship firms or partnership firms are not suitable for foreign company or foreign national investment into India.

Registration of Branch Office, Liaison Office or Project Office

Registration of Branch Office, Liaison Office or Project Office requires RBI and/or Government approval. Therefore, the cost and time taken for registration of branch office, liaison office or project office for a foreign company is higher than the cost and time associated with incorporation of a private limited company. Further, foreign nationals cannot open branch office, liaison office or project office. Hence, this option is limited to being an India entry strategy only for foreign companies.

FDI in Private Limited Company

Foreign Direct Investment (FDI) into an Indian Private Limited Company or Limited Company is allowed upto 100% in most sectors. Only a very few sectors require prior Central Government approval for investment by foreign company or foreign national. The following sectors require Government Approval for investment by Foreign Company or Foreign National:

Incorporation of Private Limited Company for Foreign Companies and Foreign Nationals

The following are the steps involved in the incorporation of a Indian Private Limited Company for foreign nationals or foreign companies:

Management and Shareholding Structure

A private limited company must have a minimum of two Shareholders and two Directors. A shareholder can be a person or a corporate entity. However, a Director has to be a person. Foreign nationals are allowed to become Directors of an Indian Private Limited Company.

The Board of Directors of the Indian Private Limited Company must have one Director who is both an Indian Citizen and Indian Resident. However, there is no requirement for the Indian Director to be a shareholder in the Company. Hence, most foreign companies or foreign nationals prefer to incorporate a company in India with three Directors – two Foreign National Directors and one Indian National Director.

The 100% shares of the Indian Company can be held by a combination of Foreign Companies and/or Foreign Nationals. Indian private limited companies require a minimum of two shareholders mandatorily. Hence, one corporate entity or person cannot hold all the shares of an Indian Private Limited Company.

Indian Company Structures with Foreigner Stakeholders

Obtaining Digital Signature for Foreign National Directors

A digital signature is required for filing the incorporation documents and continued compliance documents for a company. Hence, Digital Signatures must be obtained for one or more Director(s) of the company. The following video is a guide to submitting Digital Signature application:

The following are the documents and information required for obtaining Digital Signature for a foreign national:

Foreign national is residing in native country

If native country is a signatory of Hague Convention: For attestation, proof of identity, address proof and photo on DSC application should be notarized by the Public Notary of that foreign country and apostilled by the competent authority of that foreign country.

If native country is not a signatory of Hague Convention: For attestation, proof of identity, address proof and photo on DSC application should be notarized by the Public Notary of that foreign country and consularized by the competent authority of that foreign country . Documents required: Passport, Application form with Photo (all attested).

The following documents should be certified by the local embassy of the country to which the person belongs:

Passport

Visa

Application form with Photo(attested)

Obtaining Director Identification Number and Name Approval

Once Digital Signature(s) are obtained for the Director(s) of the proposed company, Director Identification Number (DIN) must be obtained for all the Directors. As per the Companies Act, 2013, a Director Identification Number is required for every individual intending to become a Director or a Company in India. Once, digital signature is obtained, DIN can be obtained for the Director(s) quickly and easily. Click here to know more about Director Identification Number.

Filing for Incorporation of a Private Limited Company

Once name approval is obtained, incorporation documents can be filed with the Ministry of Corporate Affairs to incorporate the Company. The incorporation documents to be filed includes affidavits & declarations from Directors, Memorandum of Association Subscriber Sheet, Articles of Association Subscriber Sheet and Registered Office Address proof.

The affidavit and declarations from the Directors contain certain declaration from the Directors. Affidavit and Declaration would have be executed independently for each of the Director and notarized (For Indian Director & Foreign Director).

Subscribing to the Memorandum of Association (MOA) & Articles of Association (AOA)

By subscribing to the MOA & AOA, the shareholders (either foreign companies or foreign nationals or Indian companies or Indian national) show their intention for becoming a shareholder in the company to be incorporated. The following video shows how the subscriber sheet of a Memorandum of Association is executed:

In case a Foreign national is signing the MOA & AOA Subscriber Sheet in India:

In case a foreign national is signing the subscriber sheet of the MOA & AOA in India: Then the signature of the foreign Director must be verified by the public notary of that country or by the Officers of the Embassy. A copy of a valid business visa to India must be attached.

In case a Foreign National is signing the MOA & AOA Subscriber Sheet while residing outside of India:

The residing country is a Commonwealth Nation: Then the signature of the Director, identity proof and address proof must be notarized by a Notary in that part of the Commonwealth.

The residing country is a party to the Hague Apostille Convention: Then the signature of the Director, identity proof and address proof must be notarized by a Notary of the country of his origin and duly apostillised in accordance with the Hague Convention.

The residing country is neither a Commonwealth Nation nor a Party to the Hague Convention:Then the signature of the Director, identity proof and address proof must be notarized by a Notary of the country and the certificate of the Notary must be authenticated by a Diplomatic or Consular Officer.

In case a Foreign Company is a subscriber to the MOA & AOA of the proposed Indian Company:

The following documents pertaining to the foreign entity subscribing to the shares of the Indian Company must be submitted:

Board resolution of the Foreign Entity authorising investment in shares of the Indian Company.

Copy of the certificate of incorporation of the foreign entity.

Copy of address proof for the foreign company.

On submitting the above documents along with the application for incorporation of a company, the Registrar would issue a Certificate of Incorporation for the Indian Private Limited Company, if the documents submitted are acceptable.

After obtaining the incorporation certificate, the Indian Company can apply for a PAN Card and take the necessary steps for opening a bank account for the company in India. The following video shows the procedure for applying for PAN for a private limited company: